Ebury: More than 85 percent of Romanian companies never hedged against FX risk

More than 85 percent of Romanian companies never hedged against foreign exchange (FX) risk and few companies manage FX risk in a structured way, Johan Gabriëls, country manager for Romania and Bulgaria at Ebury said on Wednesday.

“More than 85 percent of Romanian companies never hedged against FX risk and few companies manage FX risk in a structured way. Romanian exporters are aware of FX and agree FX fluctuations can sharply reduce their profits but there is no unanimity on how to deal with the issue,” Gabriëls points out.

One way of giving to a company a competitive advantage is to improve its management of FX risk, according to Ebury.

While competition is becoming fiercer, battles over profit margins are often won, and lost, in the foreign currencies field, the manager indicates.

FX volatility and financial markets’ instability have a heavy impact on profitability, according to the company.

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In Romania, the companies are more likely to hedge their FX exposure on EUR/USD as the managed floating regime of RON offer “natural protection” against EUR/RON volatility.

“The RON has lost on avg 2% / year over the last 10 years vs the EUR. Over the last 5 years the devaluation vs the EUR was reduced to an average of 1% / year,” Ebury said in a presentation.

Companies can protect against FX fluctuations through hedging and have the flexibility to choose the opening date of a forward and to use it only if the spot is low.

“When spot is low use the forward, when spot is high you leave it in the background,” Gabriëls explained.

The global FX market has a daily turnover of USD 5.1 trillion and a yearly turnover of USD 1,331,000 billion. Every two weeks, the FX market trades the equivalent of the global GDP, amounting USD 64,000 billion.

Ebury is one of Europe’s fastest growing companies, providing FX liquidity, volatility risk management, international payments and trade finance to SMEs.

The company is a fintech working with more than 24,000 businesses and organisations. Ebury has 19 offices in 17 countries, including in Romania, and traded USD 13 billion in foreign exchange in the last 12 months.